The Enforceability of Liquidated Damages Provisions in Non-Compete Agreements

What is a Non-Compete Agreement?

A non-compete clause, or restrictive covenant, is a standard feature of many employment contracts.  Employers seek to protect their trade secrets and proprietary information by ensuring that employees who leave their employ are unable to compete with them for a reasonable time and within a reasonable geographic distance.

Connecticut uses a five-prong test to determine the enforceability of a non-compete agreement, examining (i) the reasonableness of the time restriction, (ii) the reasonableness of the geographic restriction, (iii) the degree of protection afforded to the employer, (iv) whether it unnecessarily restricts the employee’s ability to pursue his career, and (v) the degree to which it interferes with the interests of the public.

The employment attorneys at Maya Murphy, P.C. have extensive experience in employment contracts and specifically, with non-compete agreements.  Before signing away your rights, you should consult with an advocate attorney who can make sure that you won’t be prevented from earning your professional livelihood.

Liquidated Damages

Issues arise where a restrictive covenant contract provision provides for a fixed sum of damages, sometimes in the form of liquidated damages. Liquidated damages refers to a fixed sum of money agreed upon by the contracting parties during the formation of the contract.  Whether or not a liquidated damages provision will be enforced depends on whether any damage has actually been sustained.[1] Therefore, where a court finds that no damage has been sustained by a party, a liquidated damages clause will not be enforced.[2] 

Moreover, if the court determines that payment of the liquidated damages would represent a windfall provision, the clause will not be enforced.[3] In Connecticut, courts employ a three-pronged test to evaluate whether a liquidated damages provision is an unenforceable penalty, or windfall.  Such a provision will be deemed unenforceable if: (i) the damage which was to be expected as a result of a breach of the contract was uncertain in amount or difficult to prove; (ii) there was an intent on the part of the parties to liquidate damages in advance; and (iii) the amount stipulated was reasonable and not greatly disproportionate to the amount of damage caused by the loss.[4]

[1] PRF, Inc. v. Gosselin, 1993 Conn. Super. LEXIS 3201 (Conn. Super. Ct. Dec. 1, 1993).

[2] Id.

[3] Id.

[4] Webster Fin. Corp. v. Levine, 2009 Conn. Super. LEXIS 841 (Conn. Super. Ct. Mar. 24, 2009).

Maya Murphy P.C. has proudly been included in the 2024 Edition of Best Law Firms®, ranked among the top firms in the nation. In addition, Managing Partner Joseph C. Maya has been selected to The Best Lawyers in America® 2024 for his work in Employment Law and Education Law in Connecticut. Recognition in Best Lawyers® is awarded to firms and attorneys who demonstrate excellence in the industry, and is widely regarded by both clients and legal professionals as a significant honor.

Our firm in Westport, Connecticut serves clients with legal assistance all over the state, including the towns of: Ansonia, Beacon Falls, Bethany, Bethel, Branford, Bridgeport, Brookfield, Cheshire, Danbury, Darien, Derby, East Haven, Easton, Fairfield, Greenwich, Guilford, Hamden, Madison, Meriden, Middlebury, Milford, Monroe, Naugatuck, New Canaan, New Fairfield, New Haven, Newton, North Branford, North Haven, Norwalk, Orange, Oxford, Prospect, Redding, Ridgefield, Seymour, Shelton, Sherman, Southbury, Stamford, Stratford, Trumbull, Wallingford, Waterbury, West Haven, Weston, Westport, Wilton, and Woodbridge. In addition to assisting clients in Connecticut, our firm handles education law and employment law matters in New York as well. 

If you have any questions about employment law or education law in Connecticut, or would like to speak to an attorney about a legal matter, please contact Joseph C. Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation today.